Monday, February 13, 2012

Exxon Mobil (XOM) Flex Muscles in Iraq

After signing an exploration deal with Kurdistan in the latter part of 2011, Exxon Mobil (NYSE:XOM), not unexpectedly, won't be allowed to bid in the next round of oil and gas exploration contracts in Iraq.

That's of little consequence, as the inept and corrupt Iraqi government only allows energy Western businesses in the country to take somewhere around $2 a barrel, regardless of what the price of oil is.

Many Western energy companies have foolishly went along with the Iraqis in hope of getting better deals later, but that could be playing a fool's game, something Exxon Mobil is wise not to engage in.

The decision to work with Kurdistan and its better deals has to be seen as the energy giant sending a message to Iraq, no matter how it all turns out. It also points to the outrageous actions of the Iraqi government towards the West, as the companies participating in the production in the country aren't making any money there.

As long as they are willing to grab onto the carrot, they won't profit in the region until they force the hand of the Iraqi government, as Exxon is wisely attempting to do.

It was extremely premature for other western energy companies to enter into deals with Iraq before decisions were made as to how the oil royalties would be divided up.

This is the reason Iraq has opposed any Western company doing business with the Kurds, as the competition forces them to react to the offer of the Kurds, which is superior to the laughable 'offer' of Iraq to the western oil companies.

Deputy Prime Minster for Energy Hussein al-Shahristani has said he would like to have Exxon working in the country, but noted the company knows the terms of working there.

To work in Iraq is the equivalent of doing charity in the country, and until the government changes their mind, it would be better for any energy company not to deal with a country that doesn't allow businesses to profit there.